ACIS TRUST DISTRIBUTION GUIDE
We’ve developed the Acis trust distribution resolutions templates to
enable you to:
• Effectively distribute income of a trust for the purposes of June 30 tax planning.
• Stream income where doing so will provide advantages for the trust/beneficiaries.
These templates contain samples of several possible resolutions for the distribution of
trust income. The samples take no account of specific circumstances that apply to
any trust and are prepared and provided for information purposes only.
Advice should be obtained if the trustee becomes aware of, or is required to deal with:
• franked dividends and/or capital gains that will be streamed to particular
beneficiaries;
• current year or carry forward capital losses;
• deemed capital gains (e.g. market value substitution rule);
• capital gains in the context of the small business CGT concessions;
• trust receipts that comprise franked dividends and capital gains only; or
• any other receipts or expenses which may require consideration in the context of
trust streaming.
These templates are intended as a general guide only and not as a substitute for
professional advice. Neither its contents nor any conversation or correspondence
based on, or related to it, should be construed as advice of any kind.
Please call us toll-free on 1800 773 477 if you have any questions or identify anything
that needs action while completing trust resolutions.
General
These templates may be used as a general guide for the preparation of a trust’s
income distribution procedure. Resolutions must be passed on or before June 30 in
each financial year to be effective.
The templates have been prepared specifically as a guide for use only with the current
standard redchip/Acis Discretionary Trust Deed. These resolutions may not be
appropriate for any other trust deed, and great care should be taken when referring
to them in such circumstances.
The current standard redchip/Acis Discretionary Trust Deed permits resolutions to be
passed by the trustee verbally or in writing. Trustees should not, however, rely on the
passing of a verbal resolution for the distribution of trust income, as in doing so will
make it virtually impossible to satisfy the Commissioner of Taxation that the
resolution has been passed before June 30. Decisions of the trustee can be recorded:
• By the use of a resolution signed by all trustees or directors of a corporate trustee.
Such a resolution must be signed by all trustees or directors before June 30;
• By the use of a minute of a meeting of the trustees or directors of a corporate
trustee. A minute of a meeting may be prepared after the meeting is held and
may therefore be prepared and signed after June 30 provided the meeting is held
before June 30. It is inappropriate to use a minute if the relevant trust has a sole
trustee or is a sole director company.
In all circumstances it is recommended that the document recording the resolution be
prepared and signed prior to June 30, regardless of whether the trustee uses a
resolution or a minute of a meeting to record trust distributions.
The Importance of the Trust Deed
A trust’s deed is paramount in determining how the trustee is empowered and/or
obligated to act in relation to the beneficiaries and the trust assets. It is, therefore,
vital to understand the trustee’s discretions and powers in relation to trust income,
and whether a particular action proposed by the trustee is authorised. If this is not
the case, any resolution purporting to put into effect a distribution, will be invalid.
Great care needs to be taken to examine the trust deed prior to the passing of trust
resolutions to ensure that:
• the income of the trust is properly identified and determined;
• the persons who are to receive proposed distributions are in fact beneficiaries;
• losses and outgoings can be applied in the way that the trustee proposes;
• the trustee has the ability to treat particular items as income for the purposes of
income distributions; and
• distributions are recorded in the accounts of the trust in a way which is consistent
with the trust deed and the proposed resolution.
Trustees also need to ensure they understand the tax and accounting treatment of
particular items. For example:
Treatment
Item
These form part of taxable income and may be
streamed if permitted by the trust deed. Franking
credits are not, however, income for the purposes of
Franked distributions
trust law. The ATOs regard franking credits as notional
amounts which do not represent an accretion to the
trust. Note that franking credits are attributable to the
beneficiary who receives a proportion of the franked
distributions.
These do represent an accretion to the trust, but may
not be regarded as income for trust law purposes. The
Capital gains
relevant trust deed will need to be consulted to
determine the correct treatment. Capital gains may
also be streamed by the trustee if permitted under the
trust deed.
If a capital gain arises due to the operation of the
market value substitution rule, it is a notional amount
Deemed capital gains
and does not represent an accretion to the trust and is,
therefore not income for accounting or trust law
purposes.
These may be considered to be an accretion/depletion
Unrealised gains/losses
to the trust, but are not income for accounting or trust
law purposes.
Loans that are deemed dividends are notional and do
Div. 7A deemed dividends
not represent an accretion to the trust. They are not
income for accounting or trust law purposes.
If an outgoing is appropriately charged against trust
Disallowed expenses
income for accounting purposes, it may be recognised
for accounting purposes but may not be tax deductible
e.g. entertainment expenses.
If an outgoing involves no depletion of the trust fund
Expenses that are not
(i.e. no actual payment of the outgoing occurs), the
outgoings
item may be tax deductible but is not charged against
income for accounting or trust law purposes.
Usually depreciation constitutes a trust depletion and is
Depreciation
not, therefore, a notional amount. It may be charged
against the income for accounting and trust law
purposes.
Default Beneficiaries
The trust income may be distributed to the default beneficiaries regardless of any
action taken by the trustee subsequently where trust income is not properly or
effectively distributed by the trustee prior to June 30, and the trust deed contains a
default beneficiary mechanism.
Where such a mechanism exists, the trustee is deemed to have resolved to distribute
any undistributed income to the default beneficiaries as at June 30.
The Commissioner of Taxation has withdrawn IT 328 and IT 329 on the basis they do
not represent the law on the timing of trust resolutions. The rulings permit trustees a
period of up to 2 months following June 30, to pass trust resolutions. The position
now, is that all trust resolutions must be passed on or before June 30. Failure to do so
may activate any default mechanism provided for, in the relevant trust deed.
The current standard redchip/Acis Discretionary Trust Deed does contain a default
beneficiary mechanism and will operate in the following circumstances:
• where the trustee fails to pass any resolution prior to June 30;
• where the trustee fails to determine the income of the trust prior to June 30;
• where the trustee fails to take items of income into account when passing a
resolution and those items are, therefore, not effectively distributed;
• where the trustee does not effectively stream franked distributions or capital gains
and those items are, therefore, not effectively distributed;
• where the trustee resolves to distribute to persons who are not beneficiaries at the
date of the resolution;
• where the trust deed does not authorise a particular distribution; and
• where claimed deductions are disallowed and the trust income increases
accordingly – any increase in trust income not properly distributed will flow to the
default beneficiaries.
In these examples, default beneficiaries may therefore be entitled to taxable income
of the trust in excess of that which they were anticipating. Additional tax would
accordingly be payable by those beneficiaries.
SAMPLE RESOLUTION 1 – NO INCOME STREAMING
This template demonstrates the situation where the trustee is not seeking to stream
either capital gains or franked distributions to beneficiaries.
In this particular example, the trustee determines the income of the trust for the year
will be net income as defined in section 95 of the Income Tax Assessment Act 1936 less
any amounts not actually receivable by the trustee (i.e. items of “income” which are
not accretions to the trust fund – notional amounts).
Examples of where this type of resolution might be appropriate include:
• where the trust has not derived capital gains and/or franked distributions during
the year;
• where the trust has derived capital gains and/or franked distributions during the
year, but determines not to stream those items – beneficiaries receiving trust
income will share the capital gains and/or franked distributions proportionately to
their entitlements to trust income;
• where the trust derives a capital gain which results in no net gain due to the
application of current year or prior year capital losses; and
• where the trust derives a franked distribution, which is reduced to nil by directly
related expenses.
TRUSTEE/S RESOLUTION
[TRUST NAME]
The persons signing below being all of the Trustees or all directors of the corporate Trustee of the
Trust resolve as follows:
CONSIDERED:
The Trustee considered:
1.
the trust deed for the Trust (as amended) (the "Trust Deed");
2.
the financial transactions of the Trust for the financial year ended
[YEAR].
RESOLVED:
The Trustee resolves that all actions of the Trustees during the year relating
to the investment or expenditure of Trust moneys and application of income
be ratified and confirmed.
DEFINED TERMS:
The Trustee resolves that if a word or phrase is given a defined meaning in
the Trust Deed, that word or phrase will have the same meaning in these
resolutions.
INCOME
DETERMINATION:
ACCUMULATION:
The Trustee determines, in accordance with the Trustee’s discretion in the
definition of “Income” in clause 1.1 in the Trust Deed, that the Income of the
Trust, for the financial year ending 30 June [YEAR], will be the “net income”
as defined in section 95 of the Income Tax Assessment Act 1936 less any
amounts or credits (including franking credits) which are included as income
for the purposes of the Income Tax Assessment Acts but not actually paid or
payable to the Trustee.
The Trustee determines, in accordance with the Trustee’s powers in clause
5.4(a)(ii) in the Trust Deed, to accumulate an amount of the Income as
determined by the Trustee as follows:
Amount or % of Income to be accumulated
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
INCOME
DISTRIBUTION:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4(a)(i) in the Trust Deed, that the Income of the Trust for the year (less any
amount to be accumulated as specified above) be paid, applied or Set Aside
to, or for the benefit of, the following Beneficiaries in the amounts or
proportions as follows and in the following order of priority:
Amount or % of
Income paid, applied
or Set Aside for the
Beneficiary
Beneficiary Name & Class
1
2
3
4
PRIORITY:
For the avoidance of doubt, where specific amounts are listed above and
where the Income of the Trust is insufficient to discharge the Trustee’s liability
to pay, apply or Set Aside these amounts, the Trustee determines to pay, apply
or Set Aside these amounts to fully discharge the entitlement of each
Beneficiary before any payment, application or Setting Aside to any
Beneficiary following them in the list.
SUB-TRUST:
The Trustee resolves that all amounts paid, applied or Set Aside by the
Trustee as specified above are held by the Trustee pending payment to the
relevant Beneficiaries on sub-trust in accordance with clause 7.4 of the Trust
Deed.
RESOLVED:
The Trustee resolves that regardless of any addition or adjustment to the
Income after the date of these resolutions, the Income will be paid, applied or
Set Aside in accordance with the preceding resolutions.
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
PRESENT
ENTITLEMENT:
PRIOR
PAYMENTS:
The Trustee confirms and acknowledges that each Beneficiary listed above
has an immediate and indefeasible vested interest in the Income distributed
for their benefit above and is presently entitled to the relevant share of the
Income in accordance with clause 5.8 of the Trust Deed.
The Trustee resolves that, if any Income of the Trust has been paid to any
Beneficiary or Beneficiaries during the year and prior to 30 June, those
amounts form part of the distributions made in accordance with the above
resolutions and are not in addition to them.
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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SAMPLE RESOLUTION 2 – INCOME STREAMING
This template provides an example of where the trustee is seeking to stream either
capital gains and/or franked distributions.
In this resolution the trustee determines the income of the trust for the year will be
net income as defined in section 95 of the Income Tax Assessment Act 1936 less any
amounts not actually receivable by the trustee (i.e. items of “income” which are not
accretions to the trust fund – notional amounts). The trust income will therefore be:
• amounts that are income for tax purposes (other than capital gains); less
• expenses attributable to the income for the purposes of the trust’s accounting
records; plus
• the gross amount of any capital gains (which are separated and identified for the
purposes of streaming) after the application of unrecouped capital losses.
This resolution does not provide for the application of capital losses against particular
capital gains in any order of priority. If the relevant trust deed permits the trustee to
apply trust capital losses to capital gains in this manner, there may be opportunities
to increase the tax effectiveness of the distributions (e.g. applying capital losses
against non-discountable capital gains first). You should not rely on this resolution
and seek advice if your circumstances require such considerations.
Trustees who have not concluded that streaming of franked distributions and/or
capital gains will be effective for tax purposes should consider using Sample
Resolution 1.
If a beneficiary is to be specifically entitled to the net financial benefit of a franked
distribution, the entitlement must be recorded no later than June 30. This must be in
writing.
If a beneficiary is to be specifically entitled to the net financial benefit of a capital
gain, the entitlement must be recorded in the trust’s accounts on or before 31 August.
However, where a capital gain is included in trust income, the trustee must deal with
it by June 30. Failure to do so may mean:
• no beneficiary is presently entitled to the capital gain; or
• the default beneficiaries may become entitled to the gain.
Sample resolution 2 records the beneficiary’s specific entitlement to any capital gain.
If the resolution is not signed and dated by June 30, only the net capital gain will be
included in trust income.
Trustees must take great care when streaming income. In some instances an attempt
to stream income may not achieve its intended objective or have other consequences.
For example:
• where a trust is able to reduce its net capital gain to nil using small business CGT
concessions. An attempt to stream a capital gain may result in beneficiaries being
taxable in relation to other trust income not applied for their benefit;
• where a capital gain has been calculated under the market value substitution rule
and cannot be streamed, beneficiaries may be taxed on the notional gain based on
their proportionate entitlement to the other trust income; and
• where a trust derives capital gains and/or franked distributions only, and the
shares are negatively geared (meaning no net franked distributions). An attempt
to stream a capital gain may result in no income remaining to which beneficiaries
can be presently entitled – no beneficiary can therefore benefit from the franking
credits.
Comment on Capital Gains
The streaming rules require that beneficiaries be made specifically entitled to the “net
financial benefit” of the gross capital gain. If a beneficiary is to be assessed on 50%
of the taxable portion of a capital gain, the trustee will need to stream 50% of the
gross capital gain to that beneficiary.
For the purposes of streaming, this sample resolution deals with gross capital gains
after applying capital losses of the trust and prior to any reduction by way of CGT
concessions or discounts. The net financial benefit of the gross capital gain is only
reduced by capital losses applied by the trustee for accounting purposes. This occurs
only to the extent where the capital losses are offset in the same way for tax
purposes. If there is a mismatch between the accounting and tax treatment of
capital losses, the “gross” capital gain will not be reduced by the capital losses.
Where more than one capital gain is derived, the trustee is required to determine if it
will distribute the entire capital gain or if it will distribute specific capital gains to
certain beneficiaries.
TRUSTEE/S RESOLUTION
[TRUST NAME]
The persons signing below being all of the Trustees or all directors of the corporate Trustee of the
Trust resolve as follows:
CONSIDERED:
The Trustee considered:
1.
The trust deed for the Trust (as amended) (the "Trust Deed");
2.
The financial transactions and records of the Trust for the financial year
ended [YEAR].
RESOLVED:
The Trustee resolves that all actions of the Trustees during the year relating
to the investment or expenditure of Trust moneys and application of income
be ratified and confirmed.
DEFINED TERMS:
The Trustee resolves that if a word or phrase is given a defined meaning in
the Trust Deed, that word or phrase will have the same meaning in these
resolutions.
INCOME
DETERMINATION:
ATTRIBUTION:
The Trustee determines, in accordance with the Trustee’s discretion in the
definition of “Income” in clause 1.1 in the Trust Deed, that the Income of the
Trust, for the financial year ending 30 June [YEAR], will be:
(a)
the “net income” as defined in section 95 of the Income Tax
Assessment Act 1936 (other than capital gains included in (b) below)
less any amounts or credits (including franking credits) which are
included as income for the purposes of the Income Tax Assessment
Acts but not actually paid or payable to the Trustee; and
(b)
all capital gains (to the extent a capital gain remains after the
application of steps 1 and 2 in subsection 102-5(1) of the Income Tax
Assessment Act 1997 (Cth)).
The Trustee acknowledges that the Trust’s records enable the Trustee to
identify and characterise different classes of income and capital in accordance
with the Trustee’s powers in clauses 5.2 and 5.3 in the Trust Deed.
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
ACCUMULATION:
The Trustee determines, in accordance with the Trustee’s powers in clause
5.4(a)(ii) in the Trust Deed, to accumulate an amount of the Income as
determined by the Trustee as follows:
Amount or % of Income to be accumulated.
SPECIFICALLY
FRANKED
DISTRIBUTIONS:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4 in the Trust Deed, that the Income of the Trust comprising the following
specific franked distributions (less any expenses directly relevant to those
distributions) be paid, applied or Set Aside to, or for the benefit of, the following
Beneficiaries in the amounts or proportions as follows and in the following
order of priority:
Beneficiary Name & Class
Amount or % of
dividend Income paid,
applied or Set Aside
for the Beneficiary
Particulars of franked
distribution
(e.g. company, date,
source of payment)
1
2
3
4
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
FRANKED
DISTRIBUTIONS:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4 in the Trust Deed, that the Income of the Trust comprising those franked
distributions not otherwise identified and dealt with as “Specific Franked
Distributions” by this resolution above (less any expenses directly relevant to
those distributions) be paid, applied or Set Aside to, or for the benefit of, the
following Beneficiaries in the amounts or proportions as follows and in the
following order of priority:
Amount or % of
dividend Income
paid, applied or Set
Aside for the
Beneficiary
Beneficiary Name & Class
1
2
3
4
SPECIFIC
CAPITAL GAINS:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4 in the Trust Deed, that the Income of the Trust comprising the following
specific capital gains (to the extent a capital gain remains after the application
of steps 1 and 2 in subsection 102-5(1) of the Income Tax Assessment Act
1997 (Cth)) be paid, applied or Set Aside to, or for the benefit of, the following
Beneficiaries in the amounts or proportions as follows and in the following
order of priority:
Beneficiary Name & Class
Amount or % of
capital gain paid,
applied or Set Aside
for the Beneficiary
Particulars of capital
gain (e.g. discount
gain, other gain,
asset type, event,
date)
1
2
3
4
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
CAPITAL GAINS:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4 in the Trust Deed, that the Income of the Trust comprising a capital gain
(to the extent a capital gain remains after the application of steps 1 and 2 in
subsection 102-5(1) of the Income Tax Assessment Act 1997 (Cth)) not
otherwise identified and dealt with as “Specific Capital Gains” by this resolution
above be paid, applied or Set Aside to, or for the benefit of, the following
Beneficiaries in the amounts or proportions as follows and in the following
order of priority:
Beneficiary Name & Class
Amount or % of
capital gain paid,
applied or Set Aside
for Beneficiary
Particulars of capital
gain (e.g. discount
gain, other gain,
asset type, event,
date)
1
2
3
4
OTHER INCOME
DISTRIBUTION:
The Trustee determines, in accordance with the Trustee’s discretion in clause
5.4 in the Trust Deed, that the Income of the Trust for the year (less any
franked distributions and/or capital gains and/or any amount to be
accumulated as specified above) be paid, applied or Set Aside to, or for the
benefit of, the following Beneficiaries in the amounts or proportions as follows
and in the following order of priority:
Amount or % of
Income paid, applied
or Set Aside for the
Beneficiary
Beneficiary Name & Class
1
2
3
4
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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TRUSTEE/S RESOLUTION
[TRUST NAME]
PRIORITY:
For the avoidance of doubt, where specific amounts are listed above and
where the Income of the Trust is insufficient to discharge the Trustee’s liability
to pay, apply or Set Aside these amounts, the Trustee determines to pay, apply
or Set Aside these amounts to fully discharge the entitlement of each
Beneficiary before any payment, application or Setting Aside to any
Beneficiary following them in the list.
RESOLVED:
The Trustee resolves that regardless of any addition or adjustment to the
Income after the date of these resolutions, the Income will be paid, applied or
Set Aside in accordance with the preceding resolutions.
PRESENT
ENTILTEMENT:
PRIOR
PAYMENTS:
The Trustee confirms and acknowledges that each Beneficiary listed above
has an immediate and indefeasible vested interest in the Income distributed
for their benefit above and is presently entitled to the relevant share of the
Income in accordance with clause 5.8 of the Trust Deed.
The Trustee resolves that, if any Income of the Trust has been paid to any
Beneficiary or Beneficiaries during the year and prior to 30 June, those
amounts form part of the distributions made in accordance with the above
resolutions and are not in addition to them.
SIGNATURE:
__________________________________________
Trustee
Dated
/
/
__________________________________________
Trustee
Dated
/
/
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